Inflation Targeting, Fiscal Rules and the Policy Mix: Cross-effects and Interactions
We examine how inflation targeting (IT) and fiscal rules (FR) affect inflation and fiscal performance in a large panel of countries during 1990-2009. In line with theory, both FR and IT appear to shape monetary and fiscal outcomes. Significant cross-effects seem to exist as IT strengthens fiscal performance, whereas the combination of FR and IT tends to be associated with more disciplined macroeconomic policies than if only one of these institutions operates. Our findings suggest that IT and FR affect the coordination of the policy mix, and point to potential benefits of reforming macroeconomic frameworks in a holistic fashion.
|The Economic Journal|
|Organisation||Department of Economics|
Combes, J.-L. (Jean-Louis), Debrun, X. (Xavier), Minea, A. (Alexandru), & Tapsoba, R. (René). (2017). Inflation Targeting, Fiscal Rules and the Policy Mix: Cross-effects and Interactions. The Economic Journal. doi:10.1111/ecoj.12538